Every year around tax time, I inevitably see lots of articles about maximizing deductions and figuring out ways to get more money back. There are lots of gray areas when it comes to taxes and that opens up lots of possibilities for aggressive filers. But even within the CPA community, there is a lot of debate over certain aspects of the tax code and your friend’s CPA might suggest something completely different than your CPA.
That’s one of the reasons why I like doing my taxes myself, so that I know exactly what’s going on and I can explain everything in it. The tax code might be long and boring but it’s not all that complex. As long as you can read and do some very basic math, you can do your taxes yourself.
The CPA title is actually very broad and many public accountants, private equity guys, etc hold their CPA license. Although they’re technically CPA’s, I think even they would admit they wouldn’t feel comfortable doing somebody else’s personal tax return.
What Tools Do You Need?
In order to be successful at doing your own taxes, you’ll need an interest in taxes and a decent amount of time. CPA’s have to do a lot of research and training in order to become proficient but they’ll apply that knowledge to hundreds of returns. You’re probably only doing one return so it’s up to you to do all that research for yourself. Still, I think the math and research behind taxes is a lot simpler than most people would think.
The only problem you’ll run into when doing research for taxes is that it can be hard to verify certain types of information. Finding out about deductions and credits is the basic stuff – you’ll be able to figure all of that out just by reading a basic tax book or by going through the IRS publications. But you might find some trouble when you start looking into the gray areas. One of the main issues I’m dealing with on my taxes right now is calculating the land value(for depreciation) to use for my rental property. There is no set formula provided by the IRS but there are ‘unwritten rules’ among CPA’s and real estate investors.
Information like this won’t be found in a simple Google search. You’ll have to go onto Bigger Pockets or the Bogleheads forum and ask your question there. In fact, that’s actually how I solved this problem. I posted a question about depreciation on the Bigger Pockets forum and a few people recommended a book called, NOLO’s Guide to Landlord Deductions. The depreciation section was about 100 pages long but it gave me 5 different ways to calculate my depreciation that will end up saving me about $600 on my taxes this year alone.
(Btw, I’m working on an article about maximizing depreciation but just know that it is an amazing thing!)
What Does it Take to Be a CPA?
I’m going to be blunt: I don’t think it takes much to be a CPA. Like in any profession, I’m sure there are some really good ones out there but I think it’s a myth that only a CPA can do a great job. That doesn’t mean the average person is smarter than a CPA but if you can read and you have an interest in taxes you can do just as well as the average CPA.
The reason why I feel so strongly is that this year I actually met with two different CPA’s in person. Both were very highly rated by online reviews and I ended up explaining depreciation recapture tax to the first one and arguing with the second one about the passive loss exclusion. The only reason why I knew more than both these CPA’s was because I had just read NOLO’s Landlord’s Guide. It wasn’t because I’m a genius, I just spent the time reading up on landlord deductions and clearly these guys weren’t specialists in real estate taxation.
Is Your CPA a Specialist?
Taxes are extremely complex and I don’t think there’s a CPA on the planet who is a specialist in every field of taxation(although some claim they are). For example, if you run a manufacturing business, you should go to a CPA who specializes in manufacturing. In my case, I should have been looking for a CPA who specializes in real estate transactions since that’s where most of my complex tax issues arise.
Think of it like this: if you are having a heart problem would you go to a podiatrist? Or would you seek out a cardiologist – someone who specializes in the heart. Taxes might not be as complex as the human body but at just over 74,000 pages they’re pretty damn close.
Nobody Cares About Your Money More Than You Do
This saying really applies to everyone whether you pay someone to do your taxes or especially if you do them yourself. I can guarantee that no CPA will spend more time thinking about, researching and doing your taxes than they would for their own return. No matter how much they like you or how much you pay them, you’re always going to be just another client. It’s in my best interest to do as much research as possible and do a damn good job too since it directly affects my taxes. At the end of the day, no CPA will care about your money more than you do.
I think a lot of people expect that they can just drop off their taxes and be done with it all. But as I’ve discovered there are lots of complexities to the tax code and it behooves you to take an active and willing role in your taxes. I’m not against hiring a CPA, I think most people would benefit from hiring one. But I am against people who think their CPA’s are all-knowing.
I see it over and over in the investment industry so I might be a little biased but most financial advisors are salesmen yet people assume that they’re acting in their best interest. I’d rather think the worst and be pleasantly surprised than assume the best and be dissapppointed. If you’re a landlord it won’t kill you to read a book on landlord deductions. Similarly, if you’re a small business owner, pick up a book about small business deductions.
I got the feeling from both of these CPA’s that they were going to just take my information and hand it to a secretary to enter into their tax software. I don’t need to pay $500 for that and neither do you. I give out free copies of TurboTax every year so my advice is to do it yourself or hire a specialist and take an active role in your taxes.
Readers, what do you think about hiring a CPA? Is it worth $300-$500 to hire an average CPA or should you spend more and get someone who specializes? Do you do your taxes on your own or do you pay someone to do it?
Track All Your Accounts With Personal CapitalPersonal Capital lets you see all of your accounts in one convenient place. Sign up now for free.
-Harry @ PF Pro
Latest posts by Harry Campbell (see all)
- Using Bitcoin to Make Your Most Responsible Bets - January 30, 2015
- Born to Sell Review - January 27, 2015
- How Learning to Gamble Responsibly Can Teach You Discipline for Other Areas of Life - January 27, 2015